The High Court recently found in favour of some claiming payouts from their insurance firms – but there are still some caveats for hospitality businesses. We asked Catrin Povey, an insurance lawyer at Capital Law to explain
Following lockdown, and with further local lockdowns in force, many operators had hoped they could rely on their business interruption (BI) insurance for pay-outs – yet in most cases, their BI claims have been unsuccessful. And, with the winter season right around the corner and the very real prospect of a second wave, businesses across the sector are understandably worried about if they will receive pay out or not.
Here, Catrin Povey, insurance lawyer at Cardiff and London-based law firm Capital Law, answers some frequently asked questions about BI insurance.
What is BI insurance?
BI insurance is intended to cover a business for loss of income when it cannot trade as usual, due to an unexpected event. It aims to put the business back in the same trading position it was in before the event occurred. Every policy is different, but given the unexpected nature of Covid-19, it was anticipated by many businesses, especially those in the hospitality sector, that their insurance would provide cover.
Why did insurers refuse to pay out?
Some policies clearly stated this by the inclusion of a pandemic exclusion, but the majority did not
Many insurers denied claims on the basis that BI insurance was never intended to provide cover in the event of pandemics. Some policies clearly stated this by the inclusion of a pandemic exclusion, but the majority did not, leaving many businesses confused as to why their BI insurance would not pay out when the policy suggested that it would in such circumstances.
Will this be resolved?
The Financial Conduct Authority (FCA) proceeded to bring a case against eight insurers (Arch, Argenta, Ecclesistical, MS Amlin, Hiscox, QBE, RSA and Zurich) in the High Court this summer. The trial was held at the end of the July and the decision was made public on 15 September.
The case specifically looked at how a variety of clauses in BI insurance policies should be interpreted. The Court found in favour of the FCA (and therefore of the insureds, rather than insurers) with respect to the majority of issues considered. This included most disease clauses, clauses triggered by restrictions imposed on premises as a result of a notifiable disease, certain denial of access and public authority clauses, as well as causation and trends clauses.
So, what does this mean for the drinks sector?
On the face of it the judgement seems like a huge win for businesses who filed a claim, but there are a few caveats to this result:
- The Court did not find in favour of the FCA across all policy wordings, as it preferred insurer arguments in relation to policies from Zurich and Ecclesiastical.
- The judgment is only binding on the eight insurers which took part and was not clear cut on all issues. So, while the judgement will certainly be persuasive on other claims involving other insurers, the specific policy wording of each individual claim will need to be considered against the ruling, to establish whether there is cover.
- The judgment is also highly likely to be appealed. Insurers including Arch, Argenta, MS Amlin, Hiscox, QBE and RSA are now entitled to apply to the Supreme Court for permission to appeal following a hearing held at the High Court on Friday 2 October. The FCA have said that they will continue discussions with the insurers to attempt to avoid the need for an appeal and enable pay-outs on eligible claims to be made as soon as possible. If no agreement is reached, then the Supreme Court is expected to consider the appeal by the end of the year.
The publishing of the judgment is by no means the end of the matter
If I’ve made a claim, when will I receive payment?
Insurers have yet to confirm when they will pay out on their claims, and how much. The FCA has called for insurers to handle and assess BI claims promptly and fairly where they have accepted liability. One key issue businesses may face, is where some insurers have been making deductions for some types of Government support received by policyholders during lockdown (such as the small business grants of £10,000; the hospitality business grants of £25,000, and the furlough scheme). Insurers should not use these assessments as an excuse to delay payment to policyholders.
So, what now?
If you are unsure whether your claim is affected by the test case, it would be best to speak to your insurer and/or seek independent legal advice. The publishing of the judgment is by no means the end of the matter, but hopefully it will mean that some businesses will receive much needed financial recompense and start to see a clearer path forward as they steer their way through the ongoing pandemic.